Accepted by Dan Simunic. The authors would like to thank Pamela Roush, Lori Kopp, our discussant at the 2002 AAA Auditing Midyear Conference, and workshop participants at the University of Arkansas and the University of Georgia for helpful comments. We are also grateful to two anonymous reviewers and the associate editor, Dan Simunic, for their helpful suggestions. The second author gratefully acknowledges the financial support of the Ernst and Young Accounting Faculty Research Fellowship and the Dean Witter Foundation.
An Empirical Investigation of Audit Fees, Nonaudit Fees, and Audit Committees*
Article first published online: 15 JAN 2010
2003 Canadian Academic Accounting Association
Contemporary Accounting Research
Volume 20, Issue 2, pages 215–234, Summer 2003
How to Cite
Abbott, L. J., Parker, S., Peters, G. F. and Raghunandan, K. (2003), An Empirical Investigation of Audit Fees, Nonaudit Fees, and Audit Committees. Contemporary Accounting Research, 20: 215–234. doi: 10.1506/8YP9-P27G-5NW5-DJKK
- Issue published online: 15 JAN 2010
- Article first published online: 15 JAN 2010
- Audit committee;
- Audit fees;
- Auditor independence;
- Nonaudit services
This study examines the association between audit committee characteristics and the ratio of nonaudit service (NAS) fees to audit fees, using data gathered under the Securities and Exchange Commission's (SEC's) fee disclosure rules. Issues related to NAS fees have been of concern to practitioners, regulators, and academics for a number of years. Prior research suggests that audit committees possessing certain characteristics are important participants in the process of managing the client-auditor relationship. We hypothesize that audit committees that are independent and active financial monitors have incentives to limit NAS fees (relative to audit fees) paid to incumbent auditors, in an effort to enhance auditor independence in either appearance or fact. Our analysis using a sample of 538 firms indicates that audit committees comprised solely of independent directors meeting at least four times annually are significantly and negatively associated with the NAS fee ratio. This evidence is consistent with audit committee members perceiving a high level of NAS fees in a negative light and taking actions to decrease the NAS fee ratio.